Small firms, social capital and the enhancement of business performance through innovation programmes

The paper explores the extent to which social capital is advantageous to sm all and medium enterprise (SME) growth. Social capital is a communal proper ty involving civic engagement, associational membership, high trust, reliab ility and reciprocity in social networks. It is capable of being identified in social, political and economic contexts, often associated with strong c ommunities. However, not all strong communities exert the effects of social capital in respect of business activities. This paper assesses government programmes to promote collaboration amongst SMEs for improving innovation c apacity by increasing social capital through networking. It shows that, for a sizeable proportion of programme-funded firms in Denmark, Ireland and Wa les (U.K.) social capital building was associated with enhanced business, k nowledge and innovation performance. Of particular importance was the oppor tunity afforded to firms for linkage with external innovation networks, and the build-up of embeddedness, or the institutional basis for the enhanceme nt of social capital. As a consequence of discovering the advantages of soc ial capital, over a third of respondents planned to continue to develop it in future, in many cases funding such activities privately rather than call ing on the public purse.